Anticipation of a positive vote by the parliament of Greece, a jump in technology stocks, and an announcement by international bank regulators that capital requirements won’t be as onerous as first anticipated drove the Dow to a triple-digit gain. But volume, at just 834 million shares and advancers vs. decliners on the NYSE at 2-to-1, lacks the commitment needed to conclude that yesterday’s response to some favorable news was anything more than a reactive bounce following three days of selling.
Nasdaq outperformed the other major indices yesterday — up 1.33% compared to a gain of 0.91% for the Dow Jones Industrial Average and 0.92% for the S&P 500. The gain was due to a bounce in technology stocks. But like the other major indices, Nasdaq is merely bouncing off of its major support line and its 200-day moving average on very light volume. Yesterday’s total volume of just 497 million shares ranks in the lower 20% of daily-volume days for the year. The index managed to close slightly above its 20-day moving average at 2,686, and so it could have a bounce to the next major resistance at around 2,763 — the conjunction of its 50-day moving average and the intermediate trend line.
But the chances of a major rally are slim: Note the sharp increase in its stochastic, indicating that an overbought condition could limit its advance in several days. But a close above 2,700 could neutralize June’s nasty fall and put the index into a sideways pattern.
Microsoft was one of the prime movers on Nasdaq yesterday, but the stock’s pop in price was based on its plan to announce a cloud version of “Office” and rumors of an earlier-than-expected release of Windows 8. While both items are interesting they don’t contribute immediately to the company’s earnings. However momentum could drive Mr. Softie back to its 200-day moving average at $26-plus. Note the lower volume on buying days compared to the high volume of sell days and the stochastic at close to an overbought condition — both fail to support a major turnaround.
Conclusion: Yesterday’s bounce was due more to expectation than to fact: It is expected that Greece will approve the austerity plan needed to trigger a new Euro bail-out plan despite late reports that supporters in parliament may be short a vote or two. The second quarter ends on Thursday, and it is expected that institutional buyers will emerge in the last sessions of the month. And the Association of Individual Investors (AAII) Sentiment Survey for June 23 showed that small investors increased their bullish stance to 37.46%, up from 29% and 24.42% in the two prior surveys — a negative contra-trend indication resulting from one of the survey’s largest bullish increases this year.
